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Bank of Baroda + PNB Q2 Results Review

October 29, 2010

Bank of Baroda reported PAT growth of 61% YoY to INR10.2bn, mainly due to lower than expected credit costs. While loan and margin expansion was on expected lines, BoB surprised positively on its robust asset quality as against other PSU peers that have disappointed this quarter on this front.

BOB’s loans have expanded 30% yoy (well above industry), is fairly broad-based, though there is higher growth in the SME segment (possibly higher risk as well). BOB has not made any pension provisions so far. Loan growth driven by SME segment. Margins also expanded 39bps yoy to +3.0% (up 12bps qoq). Core fee growth at +20% yoy. CASA flat at 35% yoy.

Over the medium term, the bank aspires to grow at 25% in loans, with RoAs of 1.3% and RoEs near 25%. EPS expectations of various FIs range between Rs 100 to Rs 108 for FY 2011.

Punjab National Bank:earnings (Rs10.7bn), up 16% yoy, were about 4% below est. on higher credit costs, but operationally (operating earnings, ex treasury). Topline was up 49% yoy driven by +27% loan growth and 56bps yoy margin expansion (up 12bps qoq). Pre-provision profits also up +30% despite Rs2.5bn of pension and gratuity provisions. Fee income up 17% yoy. CASA up 200bps yoy to +40.5% (flat qoq).

Loan growth was driven by SME and retail; CASA mix stayed firm at 41%, resulting in the margin uptick. Slippages – although sequentially lower – remain at an elevated level of 1.7%.

EPS for fy 11 is expected to be between 140 to 148 as estimated by various FIs.

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